As credit fears worsen, technology stocks are among the hardest hit

After an upbeat first weekend of holiday sales, there was reason to hope that the rest of the shopping season will be strong, too — perhaps strong enough to give the economy a boost and lift tech stocks in the process.

But after the markets closed Monday those hopes didn’t seem so high.

Tech stocks tanked to start the week after Thanksgiving, despite a heavy Black Friday retail turnout and high expectations for its online equivalent, Cyber Monday. Rather than focus on the ringing cash registers, investors worried that the good times won’t last because faltering credit markets will pave the way toward a recession.

Cisco (CSCO) fell 4 percent after a Morgan Stanley analyst questioned the strength of its business in emerging markets. But the pessimism didn’t stop there; Microsoft (MSFT) lost about 3 percent, as did Intel (INTC). Research in Motion (RIMM) gave up 2 percent. Apple (AAPL), which has fared better than its heavily traded tech brethren, eked out a gain of nearly 1 percent. In all, the tech-heavy Nasdaq fell more than 2 percent for the day.

For all the gloomy percentages though, the damage wasn’t bad for long-term investors. Cisco and Intel merely retreated to their summer trading levels. Microsoft, Apple and RIM returned to their trading levels from a couple of weeks ago. And there were nuggets of good news in the results from the holiday season so far.

According to the National Retail Federation, 72 million people planned to shop online Monday, up 17 percent over last year. And researcher ComScore estimated that they would spend more than $700 million on Monday alone.

Those holiday sales could have an important secondary effect on technology stocks. Cisco CEO John Chambers said earlier this month that even though he saw a spending slowdown among large U.S. customers such as banks, mid-size companies have continued to buy technology. Mid-sized companies are more likely to depend on a holiday sales surge to justify their technology purchases –- so healthy holiday sales would bode well for Cisco’s future revenues and profits. And Cisco’s not alone; as the Internet becomes an even more important way to reach customers, large technology companies are looking more to mid-sized businesses for their growth.

If the economy holds up through the end of the year, those mid-size customers might keep buying. But that looks iffier with every tepid holiday sales forecast. Though the retail federation’s survey forecast a record number of online shoppers for Cyber Monday, its forecast for the season still calls for sales of just $474.5 billion, a 4 percent increase over last year. That’s the smallest annual increase since 2002.

“The mid-market guys, as long as their business is okay, I don’t think they’re necessarily going to change their buying plans,” Jason Ader, an analyst with Thomas Weisel Partners, said earlier this month. “But the more you read the newspaper about Christmas sales being crappy, the more those mid-market companies start to get worried.”

At the same time though, the bottom isn’t going to fall out of the market for tech equipment. That’s because small and medium-sized businesses see that even if sales aren’t skyrocketing, more and more of their customers are completing transactions online. So to make their companies run, they’ll need to buy storage and other back-end systems to hold customer data and manage online transactions.

“Regardless of what the sales are like this year, we know one thing for a fact: People are buying more and more online,” said Drue Reeves, vice president and research director of data center strategies at Burton Group. “Businesses know they’ve got to have more storage to record every credit card transaction people make as a purchase online.”

That’s not much solace for those who are hoping that tech stocks will rise again soon –- but at least it’s a reason to believe they won’t fall too far.